Identification of a Rank-dependent Peer Effect Model

Eyo Herstad and Myungkou Shin

Papers from arXiv.org

Abstract: We develop a model that captures peer effect heterogeneity by modeling the endogenous spillover to be linear in ordered peer outcomes. Unlike the canonical linear-in-means model, our approach accounts for the distribution of peer outcomes as well as the size of peer groups. Under a minimal condition, our model admits a unique equilibrium and is therefore tractable and identified. Simulations show our estimator has good finite sample performance. Finally, we apply our model to educational data from Norway, finding that higher-performing friends disproportionately drive GPA spillovers. Our framework provides new insights into the structure of peer effects beyond aggregate measures.

Date: 2024-10, Revised 2025-02
New Economics Papers: this item is included in nep-ecm, nep-net and nep-ure
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